The Income Tax Appellate Tribunal (ITAT) Ahmedabad has allowed the rebate under Section 87A of the Income Tax Act on short-term capital gains under the new tax regime.
The bench of Suchitra R. Kamble (Judicial Member) and Makarand V.Mahadeokar (Accountant Member) has observed that a resident individual opting for the default new tax regime under Section 115BAC(1A) is eligible to claim the Section 87A rebate even when their tax liability arises solely from short-term capital gains (STCG) taxed at special rates under Section 111A, provided their total income does not exceed Rs. 7 lakh.
The appellant/assessee, Jayshreeben Jayantibhai Palsana had declared total income of ₹6.76 lakh for Assessment Year 2024–25, including Rs. 3.79 lakh in STCG on listed equity shares taxed at 15% under Section 111A. Since the income was below Rs. 7 lakh, the assessee claimed a rebate of Rs. 13,320 under Section 87A in her revised return, having opted for the new regime.
However, the Centralised Processing Centre (CPC) in Bengaluru denied the rebate without specifying any reason in the intimation under Section 143(1), and raised a total demand of ₹15,820, including interest and cess. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the CPC’s action, relying on the “subject to” clause in Section 115BAC(1A), provisions of Chapter XII, and the Finance Bill 2025’s memorandum clarifying that rebate is not available against special rate incomes like those under Sections 111A and 112A.
The assessee challenged this before the ITAT, arguing that neither Section 87A nor Section 111A contains any explicit restriction denying rebate on such gains, unlike Section 112A(6), which specifically excludes rebate for long-term capital gains above ₹1 lakh. The defence also cited appellate rulings, including the CIT(A) Nagpur’s order in Avni Milanbhai Maniya, and the Bombay High Court’s directions in The Chamber of Tax Consultants vs. DGIT (Systems) to process such claims on merits despite system constraints.
After examining the statutory provisions, the ITAT ruled in favour of the assessee, observing no express bar exists in law for A.Y. 2024–25 to deny Section 87A rebate on STCG under Section 111A. The “subject to” clause in Section 115BAC(1A) governs tax computation but does not limit rebates under Chapter VIII. The Finance Bill 2025’s proposal to exclude special rate incomes from rebate is prospective from A.Y. 2026–27, implying no such restriction existed earlier. Automated CPC denials cannot override clear statutory provisions.
The tribunal directed the Assessing Officer to allow the Rs. 13,320 rebate, delete the tax demand, and issue a refund if applicable.
Case Details
Case Title: Jayshreeben Jayantibhai Palsana Versus ITO
Case No.: ITA No.1014/Ahd/2025
Date: 12/08/2025
Counsel For Appellant: Jagdish Kasodaria, AR
Counsel For Respondent: Amit Pratap Singh, Sr.DR
